Point-And-Figure Chart

A point-and-figure chart shows filtered price movements of a stock over time and is used by technical analysts to determine price support and resistance levels for a given stock. Price movements on a point-and-figure chart are represented as either a rising column of Xs or a falling column of Os. Each column on a point-and-figure chart indicates an uptrend or a downtrend. New columns are added to the point-and-figure chart when the stock price changes direction by a pre-determined reversal amount. Technical analysts who use the point-and-figure chart method cite its ability to filter out insignificant price movements and remove the effects of time as reasons for preferring point-and-figure chart information to more traditional bar charts. In addition, a point-and-figure chart makes trend lines easy to recognize.

Point and figure charts are constructed as follows:

• Price movements are plotted in columns of X’s and O’s.
• Each X represents a positive price movement based on a user-selected price ‘box’.
• If the plot is in a column of X’s and the daily high price exceeds the previous x by at least the box number, then 1 or more X ‘s are added to the column (an X for each box over the previous X).
• If the daily high price is above the current X, but less than the box price, the plot doesn’t change.
• If you are in a column of  X’s and the daily low is more than the ‘reversal’ amount, then you move to a column of O’s.
• Each O represents a negative price movement based upon the box price.
• The O column functions similarly, but with respect to price decreases (e.g. if today’s low is less than the previous O minus one box, new O’s are plotted, etc.).

Point and Figure charts reduce complex price oscillations to a simple format which only displays significant price moves, providing an extremely insightful view of the price movement.

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